Friday, 22 September 2017

Politics and the Housing Problem: The Effect of Indirection

In this co-authored piece, Jake Richardson
helps me assess the recent increase in the adoption of the 5-year old ‘Build-to-Rent’
initiative which is being peddled as a potential solution to the Housing issues
being experienced within the U.K. at present. The piece finds that one of the
key outcomes of the recent moves is a demonstration that housing policy is too
divided, which the piece suggests lays at the core of the issues within this
particular marketplace.

Earlier this year it was declared in the mainstream media
that ‘solving
the housing problem is hard to deliver, hard to explain… [and] is an example of
the weakness of our political system’. This sentiment, which was used as a
platform to suggest that cutting ‘stamp duty’ could be the most viable
short-term fix, represents the difficulties that surround housing in the United
Kingdom. In this piece the concept of the housing ‘problem’ will be used rather
than the housing ‘crisis’, because even though finding solid definitions in
this field is particularly difficult, the difference between the wider
‘problem’ facing all sections of society i.e. first-time buyers, long-term renters
etc., and the more acute ‘crisis’, which describes an impending
increase in the rate of homelessness due to housing policy, for example, is
a differentiation that must be acknowledged. The impending crisis facing those
living in private accommodation is extraordinarily important to consider, but
for the purposes of this piece will form just one part of the analysis. This is
because the purpose of the piece is to present an overarching review of the
major problems so that a wider perspective can be found; the result is that we
can see that a solution is available if there was a reduction in political
wrangling in the U.K., with that same political obstruction being the direct cause of the problems we see
today.

One of the most obvious symptoms of this housing problem is
the sharp divide between regions in the U.K. Whilst it is not surprising that
the capital city will be the home of the most expensive homes in a given
country, the extent of the divide highlights the problem at hand. In fact, the
margin of that divide is so much that it makes developing an average of the
national housing situation incredibly
difficult, mostly based on the understanding that whilst the London housing
market accounts for only 15% of the U.K.’s national housing stock, it also
accounts for almost 30%
of the value of that market (a similar scenario to the City’s economic
impact upon the Country moreover). Yet, successive Governments have aimed
to redress that balance, somewhat, as part of a larger approach to housing
policy within the U.K., with there being a number of initiatives developed over
the years to meet that supposed aim. In assessing these initiatives, however, a
broader picture emerges that condemns the impact of politicians upon the health
of the Country.

One of the most visible initiatives has been the so-called
‘Help-to-Buy’ initiative that was developed and established in 2013 by the
previous Coalition government. The scheme, which aimed to increase housing
demand by developing programs related to equity loans, mortgage guarantees,
shared ownership and lower percentage deposit arrangements, became one of the
central tenets of that particular government, with the Government proudly
announcing in 2015 that the scheme has helped nearly 90,000
people buy a new home since its creation. However, onlookers have noted
that the systemic aims of the initiative has arguably not been met, with it
being suggested that pledges to build more houses on the back of that increased
demand have not come to fruition which represents an inactive and inflexible system.
Additionally, there are a number of other connected issues with the imitative
in that the scheme, arguably, encourages increased lending and therefore
increased risk, with the associated
increase in the potential for borrowers defaulting on their financial
commitments being widely recognised in the field. Also, the vulnerability of those in the scheme
to external shocks like financial crises and political shocks i.e. Brexit needs
to be considered, as elevating those without adequate resources fundamentally
increases systemic risk. The cultural aim of increasing the amount of
homeowners, and all that goes with that concept, can be additionally witnessed
in the proposed reintroduction
of the ‘Right-to-Buy’ scheme that was originally developed by the Thatcher
Government in 1980 and allows for social-housing tenants to purchase the home
that they currently live in. However, it has been particularly difficult to
maintain the pace of this cultural approach, and with the economic environment
proving so uncertain, there has been a conscious move towards the rental side
of the housing problem.

The ‘Build-to-Rent’ initiative was launched in 2012 but
has recently witnessed a dramatic increase in its adoption and popularity. The
Government provide subsidies for the development of homes that must be subject
to the rental market via the ‘Home Building
Fund’, and currently the scheme is attracting plenty of interest from large
institutional investors, chief amongst which is the Duke of Westminster who,
having succeeded his Father in 2016, is now investing
considerable sums into sites in London with the expressed aim of converting
them into multi-resident rental properties. The Urban Land Institute go through
some of the ‘best
practices’ with regards to investing in the scheme, and starts its report
with the British Housing Minister affirming that this scheme forms an important
component of the Government’s aim to build a million more homes by 2021.
However, there is something that is missing from the mainstream support for the
scheme, and that is the acknowledgement of the life of the tenant.

An article in The
Guardian states that in a new residential block in Wembley, London, 16% of
the tenants already living there are ‘key
workers’ like nurses and teachers, but the positivity in the article
ignores the plight of those ‘key workers’. Nurses are currently protesting
against the maintenance of the
1% cap on their salaries, particularly after the same cap was lifted from
the salaries of the Police and the Prison service, whilst Teachers are
embarking upon precisely
the same fight against the Austerity Government. Whilst some stories may
shine a positive light on the situation, the uncertain times being faced by
these socially-vital workers is actually being met with a wave of anti-tenant
rhetoric and procedure, which only adds to the problem. In September, Landlords
were given new
powers to access more in-depth information regarding their prospective
tenant’s ability to meet their financial commitments, whilst they are also
being warned that a raft
of regulations coming into the rental market will fundamentally affect
their position; although it is positive that regulations to enhance the
tenant’s position are being brought in, one of the effects will be a reduced
appetite for landlords to develop rental properties. These issues are in
addition to a rise in reports of widespread
discrimination against E.U. nationals in the rental market, signifying an
increase in the anti-tenant sentiment being displayed at the moment. Whilst
this aspect of those in work navigating the rental market is an important one
to consider, it is actually the plight of the unemployed that is the biggest
concern.

If we accept that the Government is attempting to garner a
more long-term vision with regards to creating a facilitative environment for
rental builders and landlords (to a lesser extent), then that belief will be
severely tested by the widespread concern regarding the impending roll-out of Universal Credit. Universal Credit is
amalgamated process for those in receipt of benefits, and there are two
particular elements which are causing alarm. The first is that for those in
receipt of the relevant benefits, the changeover to Universal Credit is leaving
people without income for an incredible six weeks (on plenty of occasions),
which is the direct cause for the rate
of rent-arrears sky-rocketing within this particular sector; those who are
in receipt of benefits, but mostly housing benefit, are simply unable to pay
their rent. However, the more concerning element is the Government’s blatant
disregard for the plight of the most vulnerable in society. Only earlier this
year did the Financial Exclusion Committee, amongst a whole host of other
bodies, confirm that the levels of financial education amongst the poor are
unerringly low, and that a number
of initiatives must be put in place to counter that lack of education i.e.
a reduction on the ability of short-term lenders to peddle their high-interest
products to poor. However, the Government’s response to this has been to remove
the process of a benefit claimant’s Housing benefit being paid directly to the
landlord, and instead have it paid to the claimant themselves. In what is a
clear demonstration of the Government’s lack of empathy, the DWP declared that
the move is intended to ‘encourage
claimants to manage their money’, which flies directly in the face of
expert opinion and consistent feedback from concerned landlords, both social
and private. However, this approach is not surprising, and in actual fact is a symptom of a larger approach that leaves
large sections of society in constant flux.

Ultimately, there is simply no sustained direction when it
comes to housing policy. Whilst it would be easy to suggest that the
consistently-changing political structure in the U.K. is at fault for this,
other democracies have managed to sustain an approach to their housing
situations and directly affect the culture
within their jurisdiction – one immediately thinks of the rental
population in Germany. Yet, in the U.K., the Governments will say one thing
and do another; the sentiment of increasing places to live will be uttered one
day, but the processes which allow people to pay for their accommodation will
be fundamentally changed and drastically threatened the next. The Government
will subsidise the development of a private market for rental properties, but
not increase the salaries of Nurses, Teachers, and a whole host of other
socially-important workers so that they may stand a chance to comfortably afford those rents, which
will no doubt be increased according to the needs of dispersed investors. Although
it is easy to lay the blame at the door of the Conservative Party because it is
they who inhabit Number 10 today, the current housing problem is a persistent
one and other political parties can be blamed just as much. What is required,
then, is a neutral discussion away from the incredibly destructive political
end-points, in order to develop a long-term and socially-advantageous housing
policy which successive Governments can support; the vulnerable in society can
be housed at the same time that dispersed investors make returns, but what is
required is the will to make that a
reality – the question is then whether this level of forward-thinking exists
within the political elite to make that balance so?

Thank you to Jake Richardson,
an Undergraduate Student in Aston
Law School, for his assistance with this piece. Please do get in touch if
you have an idea for a post in Financial
Regulation Matters and it will be considered.

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